SHARE CAPITAL – TYPES AND VARIATIONS

Division Of Share Capital Into Shares Of Fixed Amounts

Share capital
 Share capital represents capital introduced into the company by the company’s ‘shareholders’, the members.
 The share capital of a company may be divided into several different ‘classes’, or there may be
just one class of shares.
 Within each class of shares, all the shares must be of the same fixed amount. This is the nominal value of the shares.
 Issuance of shares is the first step of offering shares by the company, then people or promoters
pay for the shares, this is termed as subscription of shares and finally shares are allotted to
respective names of applicants this is paying up of the capital.
The nature of shares and share certificates [Section 60-62]
Shares and share certificates have several characteristics.
 A share is a form of property, carrying rights and obligations, and is transferable.
 A share must be paid for. It must be paid for in full when it is allotted to the shareholder.
 Every share in a company having a share capital shall be distinguished by its unique number.
 A certificate issued in physical form under common seal of the company or issued in book entry form (i.e. Electronic)
shall be the main evidence of the title of the person to such shares.
 The manner of issue of a certificate of shares, form of such certificate and other matters may be specified.
Authorized share capital
 Maximum amount of shares (in each class) that the company may issue. It is expressed in terms of the nominal value of
the shares.
 In Pakistan all companies limited by shares are required by the Companies Act, 2017 to have an
Authorised share capital, and the amount of the authorized share capital has to be specified in
the company’s memorandum of association.
 The authorised share capital can be increased.
Issued and paid up share capital [Section 58]
It is the nominal value of the shares (in each class) that have been issued to shareholders. The issued share capital may be less
than the authorised share capital, but cannot exceed it.
Issued share capital and the liability of shareholders
The actual liability of the shareholders is limited to any unpaid capital on their shares.
When shares are partly-paid, the maximum liability of the shareholders is the unpaid portion of
the share capital.
Adverts and notices [Section 25]
Amount of its subscribed and paid up capital as well in equally conspicuous letters and in equally prominent position.
Kinds and classes of shares [Section 58]
Various kinds and classes
A company limited by shares may have different kinds of share capital and various classes under
each kind. Common examples of kinds of shares are:
 Ordinary shares
Ordinary shareholders are the owners of their company. Ordinary shares are often called
‘equity’ shares. The ordinary shareholders ‘own’ the distributable profits of their company, after preference dividends
have been paid, but are only entitled to a dividend:
 If the directors propose a dividend
 (in the case of a final dividend) the shareholders vote for the payment of a dividend.

There is no limit to the amount of dividends that a company can pay to its ordinary shareholders
out of its distributable profits.
Ordinary dividends cannot be paid until all unpaid cumulative preference dividends payable have
been paid to the preference shareholders, and until all preference dividends for the current year
have been paid to all classes of preference shareholders.
In a winding up of the company, the ordinary shareholders are not entitled to receive payment of
any capital from the liquidation of its assets until all creditors have been paid and the nominal
share capital of all preference shareholders has been repaid.
The ordinary shareholders are entitled to vote at general meetings of the company. Normally, all
ordinary shareholders have one vote per share.

1
  Preference shares
A preference share normally carries a prior right (ahead of ordinary shares) to:
 Receive a dividend: the dividend payable on preference shares is normally a fixed amount
each year.
 Receive a repayment of capital in the event that the company is wound up.

Holders of preference shares therefore receive preferential treatment, ahead of the ordinary
shareholders.

VARIATION IN SHARE CAPITAL

Alteration in capital [Sections 85]
Capital clause of memorandum of association
The company can alter the capital clause of its memorandum of association so as to
 Increase the authorized capital whenever it requires;
 Cancel that part of its authorized capital which has not been paid up till the date of cancellation and such cancellation
shall not affect the rights of paid up shareholders;
 Consolidate the share capital into shares of a larger amount; or
 Divide and subdivide the share capital into shares of an amount smaller than the one fixed
by the memorandum of association initially.
The company is required to file the passed special resolution and the related documents with the registrar within fifteen days
of passing the same, failing which the resolution shall not be effective and shall ultimately lapse.
Restriction on purchase of own shares by a company [Section 86, 87 & 88]

Restrictions Exceptions
Purchasing own shares Listed Company is allowed to buy back its own shares
If subsidiary company carries on a business of brokerage, on behalf of its clients
(shall not exercise voting rights on shares of holding company)’
Purchasing the shares
Subsidiary company acting as a trustee (unless holding company is beneficially
of holding company
interested in the trust); or
If shares are held by a company by operation of law.
A Private company (not being a subsidiary of a public company);
Lending of money by a banking company in ordinary course of its business;
Providing the financial
Provision of money in accordance with any scheme approved through special
assistance (loan or
resolution and in accordance with specified requirements, if purchase of the shares
advance etc) to anyone
held by a trust for benefit of employees or such shares held by employee of the
for purchase of its own
company; or
shares or shares of its
Provision or securing an advance to any of its employees
holding
(including chief executive who, before his appointment was not
a director; and excluding all directors of company) for such.
Variation in rights of the shareholders [Section 59]
Procedure for variation in rights
The company shall alter the conditions as to various classes of shareholders. If however, the variation affects the substantive
rights of any particular class of shareholders, it shall not be deemed to have been carried out unless three fourth majority of
that particular class of the members agree to the alteration.
Right to challenge the variation in rights
Any member or members of the affected class representing at least ten percent shareholding of that class may apply to the
court for an order against the resolution varying their rights.
The court has got the powers to declare the resolution null and void if it feels that either;
 The company withheld certain facts while getting the resolution passed, had the members been in knowledge of those
facts, they would not have passed the resolution varying the rights of a particular class; or
 The change is otherwise prejudicial to the interest of members.

Such application for getting an order against the resolution should be filed by the persons aggrieved by the change within 30
days of the date of resolution. The decision of the court on such matter shall be final.